Accounts Receivable Aging

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DEFINITION of 'Accounts Receivable Aging'

A periodic report that categorizes a company's accounts receivable according to the length of time an invoice has been outstanding. Accounts receivable aging is a critical management tool as well as an analytic tool that helps determine the financial health of a company's customers, and therefore the health of their business.

BREAKING DOWN 'Accounts Receivable Aging'

If an accounts receivable aging demonstrates that a company's receivables are being collected much slower than normal, this is a warning sign that business may be slowing down or that the company is taking greater credit risk in its sales practices.

As a management tool, accounts receivable aging may indicate that certain customers are not good credit risks. It can therefore help a company make prudent decisions about whether or not to keep doing business with customers that are chronically late payers.

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